The expanding role of financial advisers

With Clayton Daniel, Managing Director of XY Adviser.

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About the podcast

"As the role of the advisor expands, the previous work and the previous roles are not diminishing, it's just additional work is being done."

Clayton Daniel, Managing Director of XY Adviser - a social network for the advice industry, joins to share how he went from aspiring rockstar, to running his own advice business, to running an online community for financial advisers. Clayton also discusses some of the trends he's seeing in this community including the expanding role of advisers, and what he has planned for the future of XY.


Matt Heine: Hi, and welcome to this episode of Between Meetings. Today, I'm joined by Clayton. Welcome to the show.

Clayton Daniel: Thanks for having me.

MH: Now, Clayton, before we kick off, you've got one of the more interesting backgrounds of anyone that I've interviewed. So why don't we start there? How did you get into this industry?

CD: Yeah, when the question came through of, "Is there any interesting stories on the career?" I thought, it's almost 20 years ago now. So this is 1999. I started joking around with some mates in a garage, playing some music. That ended up becoming six years later, ended up becoming my first career out of high school. So for the first four years out of high school, I sang in a rock band and had a great time. During that time, I was the manager as well. At the end of it, as we realised that we were nowhere good enough to actually make a long-term career out of it, the only thing I could do was pick up a phone and make things happen, which someone explained to me at some stage, "That was called business." So I said, "Okay, that's an interesting concept. So I'd better get better at this thing called business."

So I went to uni, I studied business. I was trying my hardest to figure out exactly what that was. I ended up at a breakfast one morning, and an accountant says to me, "If you're at university, maybe make sure that when you graduate, you can actually get a job rather than just have this theory or concept of business." I said, "That's a pretty good idea." So I end up majoring in accounting. I then end up working for that gentleman a couple years later.

From there, in that office, was an insurance, a risk advisor, an insurance broker. He walked me through the similarities and differences between advice and tax accounting. And then I sort of realised I enjoyed the advice better, so I moved across to advice. Eventually starting my own company and then eventually getting into XY.

So very weird journey to get here, but that's the short of it.

MH: I think probably one of the few, if only accountants to have ended up in that profession from being a rockstar. So a couple of questions on that. First of all, is the band still together?

CD: My goodness, no. Hilariously, and somewhat impressively, in a lot of ways, the lead guitarist who's still one of my best friends, is now a doctor in the ICU. What was hilarious is none of us went to school, really, for year 11 and 12 because we're all convinced that we were going to be rockstars, right? To give it more context, I grew up in a very small town where there wasn't enough responsible adults getting around us, saying, "Maybe you should think about something else." One of the other guys is a physiotherapist now.

We all sort of landed on our feet, but I think that was the impetus to show us we could get out of our small little town and go on and do other things as well. But the fact that the lead guitarist became an ICU doctor is just amazing.

MH: It's brilliant. Do you still get on the mike at all?

CD: God, no, no, no, no. Singing's definitely a skillset that requires about 10 hours a week practise which I just don't have anymore, so no.

MH: Fair enough. So you went into financial advice and, to some extent, having moved out of the music industry, followed a relatively normal course. How long did you advise for?

CD: Yeah. My first year in advice would have been 2011. I did a couple of years... I guess coming from that background in tax, I understood it pretty well, especially all the concepts around contributions and I was working specifically in SMSF which is quite tax and legislative-intense. So I fitted in quite well in that environment. Then moved across into learning about product, which I didn't actually know much about. So I'd sort of come from this strategy end and then I learnt all about product, and then after that, after a couple years in the industry, I then launched my own company.

MH: Company in financial advice?

CD: Yeah, correct, yes. So I was the principal advisor for a Hillross company.

MH: Fantastic. Then having done that side of things, decided to move across to XY. So just for those listeners, many would be familiar with XY. It's been one of the industry's great success stories. Do you want to just give us a little bit of background to how it all started?

CD: Yeah, sure. So going back to 2013 was the year that I launched my company, but also the year that a couple of mates also launched their financial planning companies as well. I remember the first time we sort of all went to the AFA Mentoring Programme. What we learnt from the AFA Mentoring Programme was huge because what that is is advisors sharing with other advisors. I remember we kind of all caught up, we said, "Wow. There's this whole other part of financial advice that we don't know about, but we've got our companies. So now we need to explore this as much as possible and expand what it means for us to provide advice, to add value to others and to earn revenue as well."

So the combination of a bunch of us getting together, we sort of used this name, XY Advisor. I think one of us had it as a URL that was for a blog that had no interest. So we were like, "Save us getting another URL. We'll just use this name." We ended up hosting an event, Brad Fox was the speaker, he spoke about what advice would like look if it started today.

 remember being in that room, there was about 20 or 30 people in that room. Just everyone's mind was blown. It's just a concept that was just so good to hear someone who knew so much about advice, was breaking the mould in that room. From there, we sort of held more events and from there, we sort of created some online communities, so the conversation could continue when the events weren't on. It really just steamrolled from there.

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MH: I think your timing was really interesting and Brad's point, fascinating, in that this is what advice would look like if it started today. In many ways, by you and your cohort, if we can call it that, starting in 2013 was when the FoFA reforms obviously came in and the whole industry really was turned on its head. So you were starting at a time where a lot of the revenue models and business models from the past were obviously under significant threat and you were having to start almost with a blank canvas.

CD: Yeah. That's precisely it. It was probably less by design and more with the timing. I think everyone was asking that same question. It had been a question that the industry was asking for a long time and in sort of pockets, we all know that for decades, pockets of advisors had sort of been figuring these questions out way before us. But it wasn't until it became pertinent that the entire industry needed to examine it simultaneously that I guess, collectively, that we were able to go through this journey together.

I've got to say, it's pretty amazing now to see so many advisors. What I've learnt is just, although I haven't now been an advisor now for a handful of years, I've learnt so much just by listening to other advisors and reading what they've got to say. Now at XY, we sort of do some research and we're teaming up with people to do some crazy stuff and to really try and push where advice should be headed from the words of the advisor. I can only say I have any understanding is because I've learnt from other advisors 10 times better than me.

MH: Yeah. Do you remember, going back to 2013, quite a long time ago now. Do you remember what some of the core values of the group were at that point? What was it that you were trying to do and how were you trying to change the industry?

CD: Yeah. Actually, it's probably ambitious to say that we thought we'd have any impact on the industry. I think our first step was to try and have an impact on ourselves and the advisors that we knew. I think at some stage, probably 2014 or 2015, we held quite a large event called The Modern Advisor. Advisors from all over Australia ended up flying in. It was a really interesting concept but during this time, was probably when we realised that it wasn't just the advisors that we knew, it was many more than the advisors that we knew.

So at that stage, we ended up writing some values. I think one of them was something like, "It has to pass the pub test." So you have to be able to talk about it in a way that other people are going to understand. I think that was one of them. Another one was, "Would you give this kind of advice to your own mother?" So that was kind of like the standard that we wanted to set was... At some stage, though we sort of went, "Actually, we're not the ones to be leading it." If that's what you call it. "There are other people who actually are 10 times better than us who should be leading the conversation."

It was about that time that we sort of started focusing more on the online community rather than the events because the events were sort of us talking or us dictating the content, whereas the community online gathering was more not-us and it was focused more on what everyone else was thinking. At about that 2015, 2016 stage, we sort of moved away from the values of what we wanted and sort of opened it up and said, "What does advisors want? What do they think's important? What do they want to see happen to advice in the future?"

So we sort of then stepped away from any conversation about, "Would there or should there not be commissions?" Or, "Should there or should there not be this or that?" Or anything. So we ended up saying, "Actually, our opinion is irrelevant. Let's just see what intelligent, progressive advisors want the advice industry to look like. Let's do it in a way that's supportive and focused on the solutions and the positive evolution of financial advice and then let's try and get out of the way as much as possible."

MH: And the Facebook page or group that you set up initially, so you went from running events, which I think you probably still do, to the Facebook or the first iteration of your community on Facebook. Were you amazed at the growth of that group over a very short period of time?

CD: Yeah. Definitely. If you actually go before 2017, we originally, originally launched on LinkedIn and LinkedIn was a barren wasteland. We had no idea about moderation and so people were just posting articles and posting their own blogs. It just became a way to self-promote. That was a big lesson.

So we sort of dropped LinkedIn, went over to Facebook with a bit more of an idea and a structure and idea of moderation and what should and shouldn't happen. It's just simply so more people can learn rather than a small amount of people putting forward exactly what it is that they wanted to.

But I would say advisors are rightfully afraid of change and... actually that's the wrong to put it. I would say advisors have been exposed to change so much that they're rightfully a little bit hesitant to jump onto anything new. So I would say probably for the first two years on Facebook, while it did have a lot of momentum, was growing quite quickly, by the third year, it became very obvious that we were not able to maintain the level of moderation that was required. It really did become berserk.

At that stage, we sort of went, "Okay, we have to figure out a solution that doesn't require us to moderate three, four, sometimes five times a day." No one likes the moderation. People who get moderated don't like it. We don't like the moderation. So we ended up, "Okay, how do we solve this problem? Okay, we kind of need to figure out a way so that everyone can have an experience that they design for themselves on the platform. We just have to provide that." It was a big risk, but at the same time, none of us had been paid and it was sort of like six years later and we were doing it as a hobby, so we were like, "Hey, if it works, if it doesn't work, it is what it is." But it worked. So now we've continued.

MH: So how many members did you have at the peak on the Facebook group?

CD: So we got to 4,000. Now, I would say one in three people who applied to join, we said, "No." Just simply you're either not involved in financial advice or not involved enough in financial advice. We were removing, I'd say, about one person a month from that. That's just because I figured out that about one in a thousand people are crazy. It is what it is. You can't control it.

So we weren't advertising, we weren't promoting, but it did get up to that about 4,000 mark where now, on the new platform, we launched January 1 this year. I should say, opened it to everyone on January 1 this year. We're about 3,200. So we might do what took I guess, including LinkedIn, five years to get to 4,000. Depending on how the rest of the year goes, but we might end up doing five years of growth in one, on our dedicated platform which will be a good sign.

MH: You've touched on moderation a couple of times now. I think that's been a huge part of the success actually. Fostering and building a community is incredibly challenging. Making sure that you do remove the crazies also challenging. Do you want to just talk about the type of moderation you're doing and why that you felt that that gave people a comfortable and safe environment?

CD: Yeah, certainly. So we actually researched this quite a bit. There is quite a bit of research out there on this, which is an un-moderated online environment always descends into chaos and abandonment. So that's the premise. So if you attempt to build something online where you're bringing a town square together, at 24/7, if it's an environment where there's no oversight, then it is guaranteed to fail, and we thought, "There's no point doing this if we're going to guarantee failure. So we should do moderation."

So the moderation is, I mean, there's a bunch of guidelines. People don't really read them, which is totally fine. No one wants the first engagement in an environment to be, "Here's the 10 commandments," or whatever. I totally get it. So what typically happens is someone will make an innocent mistake. We'll just come along and remove it and send them a message and just say, "Look, by the way, we totally get what you're trying to do. But can you please work around these guidelines? If you want to do what it is that you're trying to do, then maybe just do it in this way." So we try to, we sort of say, "Look, it's nothing personal, happens all the time. This is probably what you're trying to achieve and we support that and this is the best way to do that." So we kind of give them some constructive feedback as well. That's worked really well. Again, no one enjoys that but that's just a part of an environment that's useful and valuable to a lot of people.

So the main rules and the main topics are, just don't talk about your company. That's kind of the main thing. That solves, I'd say, 98% of things. So if you're an advisor, don't post your blog. If you're a product or service provider, don't talk about your product or service. But beyond that singular thing, there's a whole universe of things that you can talk about.

The other real main one is, don't articulate things in a complaining fashion, which has sort of, I'd say, strangled the public communications of advisors for decades, in that the premise has been when an advisor is annoyed about a concept, that the solution to that is to make a public nuisance of the issue. That's just simply not constructive. So because there's a lot of people who are experiencing similar issues and similar frustrations, then rather than getting a thousand people in a room, or in this case, almost three and a half thousand people in a room to complain about something, what we do is we say, "Okay, we are with you, we identify that this is the issue. Talk about it, let's discuss it. What are you doing to solve it?" That's kind of the premise that we enter into the conversation with. That's been, surprise, surprise, really helpful.

MH: Well, it became a positive environment where people were able to ask questions and get feedback without being trolled.

CD: Yeah, precisely.

MH: So with communities, and we'll move on in a moment, but have you seen any advisors create successful communities for their clients? It's a very different focus because it's no longer a professional network. But can it work?

CD: Yes. Yes, I have. Probably the standout on this was one of the speakers in the Work From Home tour which Netwealth was a generous sponsor of. Her name is Adele Martin and she does a lot of things but she has an online community. Her client acquisition, I would say, the workflow, if you want to consider it like a workflow, it goes like this. Person messages Adele on Facebook, conversation, online purchase of service. It's amazing to see. She's just gone entirely focused on, "How do I attract, engage and acquire clients in a completely digital environment using an online community?" She's done it phenomenally well. She's set the standard.

Undoubtedly, there's going to be a whole arm of advice that follows that path. It's at its early stage. But at the end of the day, while XY is a quote, unquote, social media, but it's realistically just an online community, but the future of engaging on the internet is via these channels. These aren't going to go away. They may pivot, they may change, they may swap in and swap out, but at the end of the day, people know that they can click on an app which is realistically the most expensive real estate in the world right now. If there's an app on the front screen on a phone, that is the real estate. So people are going to consistently do this for the absolute foreseeable future.

So having a business model that can take on clients via that is, I think, intelligent, it's also engaging with people on how they want to engage. It's certainly not for everyone but for those that want to achieve it, it is entirely possible.

MH: I think one of the restrictions that we've seen have been around licensees, AFS holders, really struggling with the concept about how do you monitor, supervise online communities and online conversations? Have you seen anything work effectively there?

CD: It's a good question. There are definitely progressive licensees out there. I can name a couple. The Wealth Network, Cobalt, they're the two that stand out in my mind. They actually both have their own groups on the XY platform. So that I can tell what their strategy is to be modern. Because at the end of the day, everyone knows that there's a handful of things that you just can't do. But it's not entirely difficult not to do that. Don't give recommendations, don't talk about products, you're kind of pretty safe. For many years, you can even de-identify any client story, but it's entirely, "This happened to Client ABC today. Bam, bam, bam, bam, bam. This was the problem, this is what we did, this is the solution." You can talk about that. That breaks absolutely no rules. You'll probably engage better with someone rather than saying, "Hey, buy XYZ product."

MH: What you've just described there is increasingly, I guess, the domain of the financial coach. What are the trends that you're seeing at the moment, particularly with your members? Are people moving away from traditional strategic advice to more financial coaching and therefore able to utilise these tools a lot better?

CD: I would say, as the role of the advisor expands, the previous work and the previous roles are not diminishing, it's just additional work is being done. So the idea of the financial coach. If I was to think about it in a structural sense, I would say that a financial coach does everything before... now, it's obviously done in ongoing service, but is everything that's done before an SOA. So there's some amazing advisors out there.

So if you think about the requirements from a legislative point of view to know your client. Traditionally, it's been this really fast-tracked, try to get through the tick-box environment so that the piece of advice can be, it's come out the other side.

Well, what happens if we spent two weeks, a month, two months, six months, maybe a year. So turning that fact-finding journey, removing it as an impediment to advice and fleshing out and expanding what it means to provide advice. The person who talks on the... The result is I would say, a more compliant piece of advice. The best advisor I've heard speak on this is [Torbourgin 00:24:22] down in Victoria where you are. David Haynes talks about it in above-the-line, below-the-line. There's some amazing advisors who speak about this.

And I was actually talking with someone just yesterday, not an advisor, in the product world. Because we'd done some research recently around this. They described it in a way I've never heard it described. I thought it was phenomenal. They said, "It's like the dark matter of advice. It's everywhere. It's hard to articulate, but it takes up more space than anything else." I thought, "Wow. You've solved my articulation issue with this entirely." I was blown away by that.

MH: That's great. I think it's certainly a growing area. If you've got any resources on that particular topic, presumably they should head to XY?

CD: Yeah, absolutely. In a lot of ways, XY has been birthed in trying to answer that question, which is, "What can I do for my client over and above traditional financial advice?" It's slowly getting answered and it's slowly being articulated. I think not only is it important for advisors to understand, because the more advisors understand, the better effect that they'll have on their clients, but also the more advisors understand, the more we can talk to the regulators about what financial advice is. So we need to, at a certain point, separate product and advice at the level of the legislation.

So there needs to be a pretty clear delineation between the two. If it doesn't happen, the risk is, not even a risk anymore. What is happening is you're just going to see financial coaches, who just don't provide advice on product. That's all you're going to see. Because this skillset and the value that's attached to this skillset is now well and truly proven. If you're an advisor and you do the hard work to figure out what financial coaching is, this dark matter of advice, and then just simply remove the pieces that require the licence, well, then, it's an attractive and becoming more attractive of an environment. I think that's a risk. But it's a natural reaction. It's a natural reaction to the increased amount of rules and regulations and costs and burdens that are being done without any concept of the effect on the advisor.

So the advisor can, and advisors are amazing, and they can hold up quite a bit, but eventually, something's going to give. This is what's going to give. You're going to see a whole parallel industry be born and it's a risk. So I think in order to avoid that happening, a real view needs to be given across what it means to be a financial planner and then respect the role of the financial planner and then separate it at the legislative level from product and then start to actually give some guidance and some structure around this financial coaching. Make it official. Add a value to it. Because it's happening anyway.

So if the regulators don't pay attention to this, then they're going to create a much bigger problem than the small percentage of advisors who have done things bad on purpose and is going to create themselves a bigger problem. I hope that I can eventually sit in front of someone who helps makes these decisions and make that clear to them. If they want to include the advisor in the future of advice, it needs to happen now. Otherwise, they're going to lose it forever.

MH: Clayton, it's a good point. There's a number of voices and lobby groups in the industry, some with vested interests, that are trying to change the direction of current regulations and legislation. Given what you've just talked about, does XY have a position in the industry moving forward as a lobby or a voice for financial coaching? How do you think about getting in front of the regulators and acting on behalf of your members, given that you've got a very substantial member list now?

CD: Yes. Our foray into this started 12 months ago where we looked at the tax-deductibility of upfront advice. We went, "Why is that not a tax deduction?" I know entities have been working on this for a decade or so, so why isn't it solved yet? Because it should be solved.

So we sort of figured out that it was a tax determination in 1995 that is the issue. It's qualifying upfront advice as a capital expense. That's a really peculiar thing to me as a former tax accountant because if it's a capital expense, then there should be a capital sale value as well, and you would reduce the price of the SOA from. Then I thought, "Well, as a purchaser of a SOA, I can't then sell that SOA to someone else and get a capital gain to then deduct my capital expense from." So I thought the whole concept of it is pretty ludicrous.

So we got a bunch of people together and now there are, literally, as we speak, teams well above our abilities, who are currently tackling this exact topic with that strategy, right now. To me, that's so super-exciting, although I'm no longer a part of the process, to go through that journey, figure out actually what the issue was and then help to solve it. Hopefully, it lands in the positive. If it does, it's going to be a huge party.

But I would say, that our intention was to just do this singular thing, because it just seemed ridiculous. But now, I sort of go, "It's ridiculous that advice and product are not separate at the legislative level." So now I'm sort of, I don't want to get distracted. We are a tech company. I know what we're set to achieve and we've got really clear goals. We have no one in our team to handle this.

So what I think will end up happening is we will play a supporting role in getting research together and helping structure the arguments from a distance, but I don't think we will get involved at a more day-to-day level.

MH: Excellent. I look forward to watching. So we have digressed. Let's get back to the tech side of it. So you started on Facebook and you've now moved across onto your own platform, which I think is from the States, if I'm correct?

CD: Yes, correct.

MH: Do you want to talk to us about how is XY evolving, what are you excited about, and why should people join up?

CD: Yeah, so I'm really excited because it's proven to be a place that advisors want to go. That's not an insane concept. As a professional in a career, do I want to see what other professionals in my profession are saying? Definitely. That just goes without... It's not a crazy concept, this idea of a vertical social media platform is certainly we're not the first people to do it. There's Doximity in the States, there's Stack Overflow, that's global, who deal with doctors and developers, respectively. So I'm excited because we're growing quickly, it's proven that it works.

Interesting story about the technology. We're just a white-labelled version of a Silicon Valley start-up called Mighty Networks. The reason that we did that is because we just simply are not tech people. We're not coders. So when we tried to build our own platform with all the functionality that Mighty Networks has, we launched it to about 20 of our closest community members. They said, "Look, it's good concept but we'll never use it because it's slow and buggy and crashes and it looks horrible." "Okay, no, fair enough." So what we ended up doing is we canned about two years of developing this thing and just went across to the guys in the States and said, "Hey, we've been tracking you guys for a while because you're doing everything that we want to do. But obviously, you've raised a bunch more money than us and your product's 10 times better than us. Can we?" But at the same time, we don't just want to go onto another third-party platform. It would serve no purpose to go from Facebook to Mighty Networks. It's ludicrous.

So what we did was we organised a way to pay them a bunch of money each year, but now they handle all of our tech costs, all of our development, all of our security, so we get that high-level, Silicon Valley experience, security, all the good stuff, for AUD$50,000 per year. The only downside is we don't get to decide on the roadmap of the product.

We'll probably use this, I would say, for the next couple years. The way that I talk to my team about it is I go, "Hey, look. Even Tesla started with the Lotus as their first chassis. They stuck their own engine in. So it's okay. We're not 100% unique from day dot, but it is the most cost-effective way to achieve what it is that we want. Then once we get past this raise that we're in at the moment, get to the next raise, which will be a lot more serious. At that stage, we've got the funds, at that stage, we rebuild from scratch and then take on the world."

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MH: Clayton, some of the listeners might not be aware, but XY's now gone from a labour of love and possibly a hobby to your full-time day job as well as your team. To do that costs money. You're in the midst of a capital raising at the moment. Love to hear your experience and how you've gone about it?

CD: Yes. So the good news is we've already invoiced in the first two months and one week of this financial year, we've already done half of what we did all of last financial year. So our goal is to continuously double our revenue each year. We're well on track to doing that.

So from a monetary point of view, we're actually doing okay. We don't need to raise specifically... a lot of companies raise because they run out of funds. We're not doing that. What we wanted to do was, for this specific raise, our seed raise, is we wanted to get as many advisors as the owners of this platform as humanly possible. So the reason why we wanted to do that is because if you look at the successful companies that have come out of crowdfunding, it's when the users and the members are the first investors. So the way that you can do that, I mean, Xinja Bank's probably the best example. They raised, I think it was like a million and then two million, the two rounds that they did on crowdfunding. Now, they just raised, it was almost $100 million. They're absolutely blown up. It's an amazing journey.

So we sort of look at something like that and go, "Okay, why would we not offer the first rights of owning the company to the early adopters who have been there for a long time?" We wouldn't be here if people weren't using it. So we thought, "Okay, let's just put it to market. We'll go, 'If you want to own a piece, you own a piece and it's yours.'" Then forever, we've got ideally, a roaming, marauding, passionate group of advisors that are constantly referring XY. So that was very much our strategy. We've used Virtual and Virtual have been a great team. I think they do the majority of crowdfunding in this country.

Even though it's a new concept, we've really enjoyed it. It's enjoyable. You sort of wake up in the morning, you go, "Hey look, it's gone up another couple of percent." The goal is to get to 100% over the course of the raise and we're two weeks and one day in and we've hit about 80%. So I expect that the other 20% will happen in the last few days but it's never... we sell tickets to a million events and we know this is how it goes. You launch, you sell a bunch, then you go through the lull through the middle, and then you sell a bunch at the end. But I tell you, during that lull, you never get used to it.

MH: So are you able to let us know how much you're trying to raise and how many investors so far?

CD: Yeah, certainly. So we're looking to raise $300,000. Virtual requests you to set an upward limit. So you go, "Okay, we would go up to $600,000 but in no way do I expect that we'll hit that amount." We couldn't even spend more than $600,000. So we're looking to raise 300,000. I think we're up to about 115, the last time I looked at it, investors, who have invested about 230,000. So we're down to the last 70,000 with about six days to go.

MH: Yeah, fantastic. Virtual's not a name I've come across before. What was the process like? Was there a lot of legal work to get the crowdfunding off the ground? Or what was the process like?

CD: Yes, yes. So the regulatory body that overlooks crowdfunding is our one and only ASIC. So we're very familiar with them, right, obviously. So there are. There's a lot of legal things to jump through. But it's not entirely impossible to do. If you're a start-up and you've got traction, you've got members, you've got users, you've got people working with your product and you have a community, then that's your audience that you can go to. But yes, there is a bunch of things that you need to do.

The offer document, for example, that took... I mean, it's obviously not as regiment as say a prospectus, an IPO. But it was maybe 40% of that. So it took a while to do. So it does take a little while to do, but at the same time, I think the concept of your clients or your members, your users, end up being the owners is so attractive, that it's worth doing those hurdles.

MH: Yeah. A community owned by community makes a lot of sense.

What's next for XY? Now that you've got nearly $300,000 in the bank, what are you going to do with it?

CD: Yes. It's for two purposes. Our distribution team comes on, so we've never actually had a sales division in XY. It's always been picked up by one of us team members. So a dedicated distribution. Also, the main product that's getting sold to market is now something called XY Pulse.

What's really interesting is I watched a doco on Netflix last night and it was all about how bad social media is. I fully agree. But the issue with social media is their revenue model. What was really interesting is one of the guys, the former chief commercial officer of Facebook talks about how they came up with the revenue model. So they said, "Look, we understand everything about all these people that are on Facebook. Let's just sell that data to advertisers." Actually, that's the wrong way to...

MH: Is this The Great Hack, by any chance?

CD: No, it wasn't. The first time I saw it was yesterday. I think it's like brand, brand new. I can't remember what it's called. It's really, really new. The way that they talk about it with such regret. That's because the revenue model that's attached to social media to date is, I would say, horrible. It is intended to influence people's opinions, actions. I'm not a fan of it.

So when we created the revenue model for XY, we didn't want to create that. So what we ended up creating is a completely new, completely new revenue model for social media, which is almost the opposite. So what it does is it allocates every single advisor to a persona. Any engagement that they do on the platform is not registered to them as the individual. It's registered to them as the persona. So basically, we can go to large financial institutions and say, "Hey, look, do you want to know what your ideal market is doing? Do you want to know what they're thinking? What their problems are? What they think the solutions are? What they think is interesting? What they think is boring? What they're engaging with?" Give you a bunch of insights exactly on your ideal market and all privacy, all privacy is maintained. Not a single piece of personal data exits XY.

I think that is a extremely unique business model for a social media company which, to be honest, Facebook and LinkedIn are far better place to be able to do. But it's too late for them. They can't swap their business model. They've got shareholder requirements and they've got growth to achieve. It's too late for them.

I think although we've come up with this, we won't be the only company that does this. If you fast-forward five years from now, this is actually too valuable of a strategy to not do. I foresee a bunch of vertical social medias doing precisely what we're doing in other verticals.

MH: So Clayton, if we play that out for a bit, if we came to you and were looking for information and insights onto integrated practises, is that the sort of persona level you're talking about? Or how deep do you go?

CD: Yeah, so we currently just use four data points. So it's at the advisor level. So it's, "Are you self-employed or are you employed?" What are we really asking there? We're asking are you the decision-maker? "Are you aligned or are you a private licensee?" What's the question there? If you are the decision-maker, how much sway do you actually have? "Do you have a degree or not?" Well, are you planning on sticking around in the industry or not? "And are you over or under seven years' experience?", which is the industry average, which sort of says, are you in the mindset of growth or are you in the mindset of maintenance? Those four data points, each have a binary option, it's just yes or no, which creates 16 personas as a combination of those four data points.

If say, Netwealth says, "Hey, what are self-employed, over seven years' experience, at a private licensee, with a degree, what's their view on this?" Now, we might now, because it's version one of the software, we can't answer your custom question today, right now. But five years from now, we'll be able to. What we can do is say, "This is what that demographic are saying will improve the industry." So the purpose of that is is so that when you guys have your board meetings, that the report turns up, the XY advisor report turns up and essentially operates as the advisor voice in the decision-making of the large financial institutions.

So if advisor to advisors want to improve the industry by sharing amongst each other, then we kind of now see it as our job to package up those pieces of essentially improvement recommendations and putting them into the hands of the decision-makers on the other side of the industry. If we can do that, we've achieved our mandate of driving the positive evolution of financial advice.

MH: Fantastic. That's exciting stuff, Clayton. Well done to you and the team. I think that shows real vision.

Clayton, we've run out of time, unfortunately. Congratulations to you and the team on everything you've achieved. It really is inspiring and it's great to see the passion coming through on social media every day. We're excited to see where it goes and all the best.

CD: Thanks so much, Matt.

You can subscribe to Between Meetings on iTunes, Spotify, Google podcasts or Stitcher.

Views expressed are of the interviewee and may not be the opinion of Netwealth or its related companies.

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